Tax Type
Retail Sales and Use Tax
Description
Cargo containers; Leasing; Repairs and maintenance
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
03-17-1995
March 17, 1995
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This will reply to your letter of April 25, 1994 in which you seek correction of sales and use tax assessments for**************(the "Taxpayers") for the period May 1987 through December 1992.
FACTS
Taxpayer #1 is a steamship agency that books space aboard ocean-going vessels. For this service, Taxpayer #1 receives commissions from the foreign shipping line. In addition, Taxpayer #1 owns shipping containers which are leased to the foreign shipping line. Taxpayer #2 operates a repair facility in Virginia and repairs the leased containers .
An audit revealed that the Taxpayers failed to collect sales tax on the proceeds from shipping container leases. The auditor assessed tax on the lease income and also on the purchase of parts and materials used in the maintenance and repair of the containers.
In a previous ruling, it was determined that the proceeds derived from the leasing of containers were properly taxed. The department also ruled that it was willing to abate 50% of the tax attributable to purchases for repair parts to reflect the use of those parts in leasing activities. You have provided additional information in support of your position that the leases are not subject to tax. You assert that all containers are leased to a foreign shipping line not doing business in the United States. Furthermore, you state that all repair parts are purchased for use on leased containers and may be purchased under a resale exemption certificate; therefore, the repair parts are not subject to the tax.
DETERMINATION
Code of Virginia §58.1-603(2) imposes the sales tax on "the gross proceeds derived from the lease or rental of tangible personal property, where the lease or rental of such property is an established business...." Virginia Regulation (VR) 630-10-57 explains the tax treatment of leases and requires that any person engaged in the business of leasing or renting tangible personal property to others is required to register as a dealer and collect and pay the tax on gross proceeds.
You contend that the Taxpayers' have no Virginia customers and the leased containers were never in Virginia; therefore, the proceeds from the leasing of cargo containers are not subject to tax. However, this position is inconsistent with total Virginia sales reported on the Taxpayers' Virginia corporate income tax returns filed with the department. Those returns indicate that the Taxpayer had Virginia sales (income attributed to Virginia from the leasing of containers) and lists property attributable to Virginia. You assert these are theoretical amounts calculated for internal purposes.
Because the audit was based on amounts reported on the corporate income tax returns and there was not a review of the Taxpayers' actual Virginia activity, I find that there may be additional information relevant to the audit that should be considered. Accordingly, the assessment will be returned to the Interstate Audit Unit so that the auditor may consider any additional information and determine the Taxpayers' actual Virginia activity. If, after the auditor has completed the review, the Taxpayers disagree with the determination, they may file an application for correction pursuant to Code of Virginia §58.1-1821.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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Rulings of the Tax Commissioner